COMPUTERISED FINANCIAL SERVICES METHOD

A method of determining a measure of residual income in relation to a company or investment, comprises first determining the forecast earnings or cash flow stream (E) of the company or investment for at least one time period (t) in the future, and deducting from this a charge (CC) for the mean cost of capital employed. The charge (CC) for the cost of capital employed is based not upon balance-sheet values, but rather upon a value of enterprise value (EV). The value of enterprise value (EV) is determined by adding the value of debt (VOD) and adjustments (ADJ), if any, to the current market capitalization (MC) of the company or investment. A measure (EV+) of residual income (RI) is thereby obtained as EV+=E−CC. A warranted enterprise value can be obtained by summing the present values of the residual income for a plurality of future years, with the present value of the difference between the terminal value and the present enterprise value, and the present enterprise value itself. Various subsidiary metrics can be developed from the residual income measure obtained.Instead of using enterprise value, the market capitalization (MC) can be used. In this case the interest rate used to calculate the cost of capital is the cost of equity capital only, and the cash flow/earnings used are taken after deduction of interest paid.